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Tenet Healthcare (THC) Q3 Earnings Beat, Down Y/Y, Shares Drop

Shares of Tenet Healthcare Corporation THC have plunged 25.4% since it reported third-quarter 2022 results on Oct 20. Investor sentiments might have been hurt by the year-over-year drop in the bottom line resulting from elevated labor costs and softer contributions from the Hospital Operations and Other segment, the most significant contributor to THC’s top line. A not-so-impressive 2022 outlook also acted as a drag on the stock. Nevertheless, the downside was partly mitigated by strong performances of its Ambulatory Care and Conifer segments.

Quarterly Operational Update

Tenet Healthcare reported third-quarter 2022 adjusted earnings of $1.44 per share, which outpaced the Zacks Consensus Estimate by 12.5%. However, the bottom line dropped 27.6% year over year.

Net operating revenues slid 1.9% year over year to $4,801 million in the quarter under review. The top line beat the consensus mark by a whisker.

Adjusted net income from continuing operations of Tenet Healthcare of $162 million tumbled 25% year over year. Adjusted EBITDA dipped 1.6% year over year to $841 million.

Operating expenses of $4,310 million escalated 9.7% year over year, mainly due to net gains on sales, consolidation and deconsolidation of facilities reported in the prior-year quarter.

Tenet Healthcare Corporation Price, Consensus and EPS Surprise

Tenet Healthcare Corporation Price, Consensus and EPS Surprise
Tenet Healthcare Corporation Price, Consensus and EPS Surprise

Tenet Healthcare Corporation price-consensus-eps-surprise-chart | Tenet Healthcare Corporation Quote

Segmental Details

Hospital Operations and Other

Net operating revenues in the segment totaled $3,778 million in the third quarter, which declined 6.3% year over year. Yet, the reported figure beat the Zacks Consensus Estimate of $3,733 million. Divestiture of Miami-area hospitals of Tenet Healthcare in the third quarter of 2021 coupled with patient volume constraints stemming from the COVID-19 pandemic induced the feeble performance of the segment.

On a same-hospital basis, net patient service revenues decreased 4.8% year over year to $3,425 million.

Adjusted EBITDA of $432 million fell 12.9% year over year in the quarter under review but surpassed the consensus mark of $373 million. Increased premium pay as a result of the pandemic coupled with elevated contract labor costs dampened the metric’s prospects.

Ambulatory Care

The segment reported net operating revenues of $806 million, which climbed 21% year over year on the back of expanding service lines, better pricing yield and additional revenues linked with the SurgCenter Development (SCD) acquisition. The figure fell short of the consensus mark of $846 million.

Adjusted EBITDA rose 16.4% year over year to $319 million in the third quarter and also outpaced the consensus mark of $307 million.

Conifer

Net operating revenues improved 6.1% year over year to $333 million, thanks to contractual rate increases and new business growth. The figure lagged the Zacks Consensus Estimate of $336 million.

Adjusted EBITDA of $90 million rose 5.9% year over year on the back of higher revenues and prudent cost-management efforts. The metric also surpassed the consensus mark of $77 million.

Financial Position (as of Sep 30, 2022)

Tenet Healthcare exited the third quarter with cash and cash equivalents of $1,208 million, which plunged 48.9% from the 2021-end level. Total assets of $27,076 million fell 1.8% from the figure at 2021 end.

Long-term debt, net of current portion, amounted to $14,962 million, down 3.5% from the level as of Dec 31, 2021. Short-term debt totaled $131 million at the third-quarter end.

THC had no outstanding borrowings under its $1.5-billion line of credit at the end of the third quarter.

Total shareholders’ equity of $1,235 million increased 20.1% from the figure at 2021 end.

Net cash provided by operating activities tumbled 27.1% year over year to $315 million in the third quarter. Free cash flows were recorded at $150 million, down 53.3% year over year.

Share Repurchase Update

Management approved a $1-billion share buyback program that will run through 2024 end.

Fourth-Quarter 2022 Outlook

Net operating revenues are forecast between $4,816 million and $5,016 million. Adjusted EBITDA is projected within $803-$903 million.

Adjusted net income from continuing operations is estimated between $112 million and $172 million in the fourth quarter. Adjusted earnings per share (EPS) are predicted within $1.00-$1.54.

2022 View

Concurrent with the third-quarter results, management revised the full-year guidance for certain metrics.

Net operating revenues are presently estimated between $19,000 million and $19,200 million. The high end of the altered outlook was trimmed from the prior outlook of $19,000-$19,400 million. The midpoint of the revised guidance indicates a decline of 2% from the 2021 reported figure.

Adjusted EBITDA is projected within $3,375-$3,475 million. The high end of the updated outlook was lowered from the prior view of $3,375-$3,575 million.

Adjusted EBITDA margin is anticipated in the 17.8-18.1% band compared with the earlier view of 17.8-18.4%.

Adjusted net income from continuing operations is forecast between $650 million and $710 million, while the previous outlook called for the metric to stay between $645 million and $780 million.

Adjusted EPS is currently estimated within $5.88-$6.42 compared with the earlier view of $5.80-$7.00. The midpoint of the revised guidance implies a 18.9% decline from the reported figure of 2021.

Net cash provided by operating activities is estimated between $1,025 million and $1,300 million, down from the previous outlook of $1,100-$1,400 million.

Free cash flow is expected within $300-$525 million, down from the prior outlook of $375-$625 million. Capital expenditures are still projected between $725 million and $775 million.

Zacks Rank

Tenet Healthcare currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the Medical sector players that have reported third-quarter results so far, the bottom-line results of Humana Inc. HUM, Molina Healthcare, Inc. MOH and Centene Corporation CNC beat the respective Zacks Consensus Estimate.

Humana reported third-quarter 2022 adjusted earnings per share (EPS) of $6.88, beating the Zacks Consensus Estimate by 10.1%. The bottom line soared 42.4% year over year. HUM’s revenues improved 10.2% year over year to $22,799 million but fell short of the consensus mark by a whisker. Total premiums of Humana amounted to $21,468 million, which grew 8% year over year in the quarter under review.

Molina Healthcare reported third-quarter 2022 adjusted earnings of $4.36 per share, which outpaced the Zacks Consensus Estimate by 2.6%. The bottom line soared 54% year over year. MOH’s total revenues amounted to $7.9 billion, which rose 12.6% year over year in the quarter under review and beat the consensus mark by a whisker. Premium revenues improved 12% year over year to $7.6 billion in the third quarter.

Centene reported third-quarter 2022 adjusted earnings per share of $1.30, which outpaced the Zacks Consensus Estimate by 6.6%. The bottom line grew 3.2% year over year. CNC’s revenues of $35.9 billion advanced 11% year over year in the quarter under review and also beat the consensus mark by 1.1%. Premiums of $31.8 billion rose 10.3% year over year in the quarter under review, while service revenues climbed 14.7% year over year to $1.9 billion.


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